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BLUE BOOK

ECB

EZB

EKT

B

CE

EK

P

PAYMENT AND SECURITIES

SETTLEMENT SYSTEMS IN

THE EUROPEAN UNION

June 2001

BLUE BOOK

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European Central Bank,2001

Address Kaiserstrasse 29D-60311 Frankfurt am Main

Germany

Postal address Postfach 16 03 19

D-60066 Frankfurt am Main

Germany

Telephone +49 69 1344 0

Internet http://www.ecb.int

Fax +49 69 1344 6000

Telex 411 144 ecb d

The country chapters in this Blue Book are published under the responsibility of the respective national central banks.

All rights reserved.

Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.

ISBN 92-9181-178-5

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Foreword 5

Introduction 7

General terms and acronyms 8

Chapters 1 Euro area 112 Belgium 553 Denmark 894 Germany 1235 Greece 1576 Spain 1837 France 221

8 Ireland 2599 Italy 28910 Luxembourg 31311 Netherlands 33512 Austria 36713 Portugal 39514 Finland 42515 Sweden 45316 United Kingdom 479

Annexes 1 Comparative tables 519

2 Country tables 547

3 Methodology for the statistical data 713

4 Glossary 723

In accordance with Community practice, countries are listed in the Blue Book using the alphabetical order ofthe national languages.

In general, systems are described as of November 2000, although for some systems more recent informationhas been used. Data used in the Blue Book are as of end-1999 unless otherwise indicated.

Conventions used in the statistical tables:- Not applicable or not available;. Not yet available; and... Nil or negligible.

Country tables (1995-99):For the 11 Member States which adopted the euro on 1 January 1999, figures have been converted into eurousing the fixed conversion rates for all years, with the exception of Table 4 which is given in national currency.

For the other Member States, figures are represented in national currency.

Comparative tables (1998-99):Figures have been converted into euro for all countries using the exchange rate shown in Table 1 of therespective country tables.

Contents

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ECB B lue Book J une 2001 5

This report on Payment and securities

settlement systems in the European Union is

the third edition of what has come to be

known as the Blue Book. The Blue Book

dates back to September 1992 when the

Committee of Governors of the Central Banks

of the Member States of the European

Economic Community published a descriptive

guide to the payment systems of the then 12

Member States of the European Community

(EC). The second edition, which contained

information on the 15 European Union (EU)

Member States, was published by the European

Monetary Institute (EMI) in April 1996. Thisthird edition contains revised texts and data for

all 15 EU Member States, taking into account

the fundamental changes which have taken

place in the period from 1996 to 2000.

In the institutional context, the most important

changes were the establishment of the

European Central Bank (ECB) and the

European System of Central Banks (ESCB)

in June 1998 and the introduction of the

single currency the euro on 1 January 1999.

Within the euro area (i.e. those countries

which have adopted the single currency), the

euro has replaced the legacy currencies in all

central bank operations and in wholesale

market activities.

Payment and settlement systems have been

growing in importance over the past two

decades. The introduction of the euro has

fostered the integration of these systems

within the EU and, in particular, the euro area.

This is a result of an escalation in both thevolume and the value of transactions stemming

from money and foreign exchange markets and

from financial markets in general.

Within its currency area, the ECB, like any

central bank, has a direct interest in the

prudent design and management of the

payment and settlement systems processing its

currency. The smooth functioning of payment

and settlement systems is a crucial aspect of

a sound currency and is essential to theconduct of monetary policy. These systems

also have a significant bearing on the

functioning of financial markets. Moreover,

reliable and efficient payment systems are

crucial to the maintenance of banking and

financial stability. In this context, great attention

is paid to the smooth functioning of payment

and settlement systems and instruments, as

well as to reducing the potential risks

associated therewith.

In the light of the introduction of the euro and

other developments which have triggered

an advanced level of integration of EU payment

systems, the need for a comprehensive

description of payment and securities

settlement systems in the European Union isof even greater importance today than it was

previously. However, the Blue Book is not

designed solely for the use of central banks.

Other institutions which are involved either

in discussing payment systems issues or in

establishing or using payment systems

infrastructures may also benefit from the

information which it contains.

Payment and settlement systems are not static

in nature. They are dynamic systems which

have evolved over time and which will continue

to do so. Euro banknotes and coins will be

introduced in January 2002 in the Member

States which have adopted the euro. This will

lead to even greater integration on account of

increased demand from the public for faster,

safer and cheaper services. It is thus expected

that the integration of payment and settlement

systems witnessed in the area of wholesale

activities will rapidly spread to retail banking.

I would like to thank all the EU central banksfor drafting their respective country chapters.

Their contribution to and assistance in the

preparation of this publication has been

invaluable.

Frankfurt am Main, June 2001

Willem F. Duisenberg

President

Foreword

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ECB B lue Book J une 2001 7

The aim of the Blue Book is to provide

a comprehensive description of the main

payment and securities settlement systems in

the Member States of the European Union

(EU). These descriptions cover both the

domestic and cross-border aspects of the

systems. The range of schemes covered is not

exhaustive and the selection is not intended to

indicate their relative importance.

For historical reasons and on account of

differences in the legal, regulatory and

institutional environment, the variety and

structure of payment systems differ fromcountry to country. Similarities do, however,

exist, and the introduction of the euro has

triggered further harmonisation. For this

reason the current edition of the Blue Book

introduces a euro area chapter which describes

aspects and features of payment and securities

settlement systems which are common to, or

are relevant to, the Eurosystem as a whole.This

chapter also describes the common legal and

regulatory framework, focusing, in particular, on

the role of the European Central Bank and the

Eurosystem. The country chapters deal with

individual domestic features which are not

common to the Eurosystem.

In order to allow a direct comparison of the

various payment systems, the euro area

chapter and the 15 country chapters follow a

commonly agreed outline. Each chapter is

divided into four sections: the first section

provides an overview of the institutional

aspects which have an impact on payment

systems and briefly describes the major partiesinvolved. The second section deals with the

payment media used by non-banks and with

recent developments in the area of retail

payments. The third section focuses on

interbank transfer and settlement systems.The

fourth section describes the various securities

settlement systems.

This edition of the Blue Book, unlike the

previous edition, contains a brief description of

the role of the NCBs/ECB in the area of

oversight.This reflects the growing importance

which central banks are attaching to the sound

and efficient functioning of payment systems.

In addition, the third section of each country

chapter has been expanded. There are two

reasons for this. First, when the last edition of

the Blue Book was published, most countries

did not have an RTGS system, so this section

included a description of the form which their

respective RTGS system was going to take,whereas the current edition of the Blue Book

describes RTGS systems which have been

operational for at least two years.The second

reason is that the section on retail payment

systems has been expanded in order to

include e-money and card-based schemes, thus

reflecting the effect that advances in

technology have had on payment systems.

The fourth section, which deals with securities

settlement systems, has also been expanded in

order to include a description of the trading

structures and the clearing houses in each

country. This section therefore follows

a security from when it is traded through to

the settlement process.

Each country chapter includes a list of

abbreviations. At the end of the last country

chapter, a glossary is presented.

Finally, the annexes include an account of the

methodology used for the statistical data,cross-border comparative tables and a set of

statistical data for each country. The latter are

presented as a time series in order to facilitate

the analysis of recent developments.

Introduction

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Countries

BE BelgiumDK Denmark

DE Germany

GR Greece

ES Spain

FR France

IE Ireland

IT Italy

LU Luxembourg

NL Netherlands

AT Austria

PT Portugal

FI Finland

SE Sweden

UK United Kingdom

Currencies

or EUR euro

BEF Belgian franc

DKK Danish krone

DEM Deutsche Mark

GRD drachma

ESP pesetaFRF French franc

IEP Irish pound

ITL lira

LUF Luxembourg franc

NLG guilder

ATS schilling

PTE escudo

FIM Finnish markka

SEK Swedish krona

GBP pound sterling

USD US dollar

Others

ACH automated clearing house

ATM automated teller machine

BAS Business Administration System

BIS Bank for International Settlements

CAD Capital Adequacy Directive

CBF Clearstream Banking Frankfurt

CBL Clearstream Banking Luxembourg

C.E.T. Central European Time

CCB correspondent central bank

CCBM correspondent central banking

model

CCP central counterparty

CDs certificates of deposit

Cedel former Luxembourg-based European

clearing house Centrale deLivraisons de Valeurs Mobilires

CEPS common electronic purse

specifications

CLFI Consolidated Law on Financial

Intermediation

CLS continuous linked settlement

CP commercial paper

CPSS Committee on Payment and

Settlement Systems

CRD cash ratio deposit

CSD central securities depository

DVD delivery versus delivery

DVP delivery versus payment

EACH European Association of Central

Counterparty Clearing Houses

EAF Euro Access Frankfurt

EBA Euro Banking Association

EBP electronic bill presentment

EBPP electronic bill presentment and

payment

ECB European Central Bank

ECBS European Committee for Banking

StandardsECN electronic communications network

ECS Euro Clearing System

ECSDA European Central Securities

Depository Association

edc European debit card

EDI electronic data interchange

EDIFACT Electronic Data Interchange for

Administration, Commerce and

Transport

EDP electronic data processing

EEA European Economic AreaEFTPOS electronic funds transfer at point of

sale

ELMI electronic money institution

EMI European Monetary Institute

EMU Economic and Monetary Union

EMV standard for integrated circuit cards

established by Europay,MasterCard

and Visa

EPM ECB payment mechanism

EPSS European Payment Systems Services SA

ERP Euro Retail Payment

ESCB European System of Central Banks

ESCC European Securities Clearing

Corporation

EU European Union

8

General terms and acronyms

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Eurex European Exchange (common

futures market of the German and

Swiss stock exchanges)Euro 1 EU-wide payment system of the EBA

Euro-giro European network for postal giro

systems

EuroMTS electronic bond trading platform for

European benchmark bonds

Euronext single stock exchange created by the

merger between the Amsterdam,

Brussels and Paris stock exchanges

FAFO first available first out

FESCO Forum of European Securities

Commissions

FESE Federation of European Securities

Exchanges

FIFO first in first out

FIN store and forward messaging service

for financial institutions on the

SWIFT network

FIN Copy function of the SWIFT network

whereby instructions may be copied

and optionally authorised by a third

party before being released to the

beneficiary

FOP free of paymentFRA forward rate agreement

GAAP US Generally Accepted Accounting

Principles

GNP gross national product

GSCC United States Government

Securities Clearing Corporation

GUI graphical user interface

HCB home central bank

IASC International Accounting Standards

Committee

IBAN International Bank Account NumberICSD international central securities

depository

IGFs Investment Guarantee Funds

IOSCO International Organization of

Securities Commissions

ISD Investment Services Directive

ISFs Investment Services Firms

ISIN International Securities Identification

Number

ISMA International Securities Markets

Association

IST Information Society Technologies

programme

LCH London Clearing House

Matif French financial futures market

March Terme International de

France

MEFF Spanish Futures and Options Market(fixed income) Mercado Espaol

de Futuros Financieros (renta fija)

MoU Memorandum of Understanding

MT100, SWIFT message formats for

MT102, transferring payments

MT103

NBRLs net bilateral receiver limits

NCB national central bank

Necigef the Dutch CSD

NOREX common Nordic securities market

Alliance created by the merger between the

Stockholm,Copenhagen and

Reykjavik stock exchanges

NSLs net sender limits

OTC over the counter

PACE Purse Application for Cross-border

use in Euro

PIN personal identification number

PKI public key infrastructure

PNB Potential Net Balance

PNS Paris Net Settlement system

POS point of sale

repo repurchase agreementRTGS real-time gross settlement

SWIFT Society for Worldwide Interbank

Financial Telecommunications

SWIFT- store and forward messaging service

NetFIN for financial institutions on the new

SWIFTNet platform

SET secure electronic transaction

SFD Settlement Finality Directive

Sicovam French CSD and clearing authority

SA Socit Interprofessionelle pour la

Compensation des ValeursMobilires SA

SMEs small and medium-sized enterprises

SMS Short Message Standard

SOS Single Obligation Structure

SSS securities settlement system

STP straight-through processing

TARGET Trans-European Automated Real-

time Gross settlement Express

Transfer system

TfT Trade-for-Trade

WAP Wireless Application Protocol

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Euro area

June 2001

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Euro area

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Euro area

Introduction 15

1 Institutional aspects 161.1 The general institutional background 161.2 The role of the Eurosystem 181.3 The role of other private and public sector bodies 23

2 Payment media used by non-banks(aggregated euro area description) 262.1 Cash payments 262.2 Non-cash payments 272.3 Recent developments 28

3 Interbank exchange and settlement systems 293.1 The real-time gross settlement system:TARGET 293.2 The Euro I system of the Euro Banking Association 343.3 Cross-border retail payment systems 373.4 Future developments 46

4 Securities clearing and settlement systems 484.1 Trading 484.2 Clearing 494.3 Settlement 50

Contents

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Euro area

Introduction

Payment and securities settlement systems in

the EU were originally created with the aim of

meeting domestic requirements. They were

rather diverse in nature and not necessarily

suited to the needs of a single currency area,

where an infrastructure is needed which

enables the quick and smooth flow of payments

and securities at a low cost in the whole area.

Against this background, the financial

infrastructure in the EU has undergone rapid

changes both in the run-up to and following

the introduction of the euro. The launch of theeuro and developments in technology led to an

overhaul and re-shaping of the infrastructure

for effecting payments and for the trading,

clearing and settlement of securities. In

addition, the advent of the single currency has

also accelerated efforts to harmonise and

consolidate payment and securities settlement

systems.

Some payment and securities settlement

systems are common to, or relevant for, all the

EU Member States which have adopted the

euro as their single currency. The aim of the

chapter on the euro area is to describe these

systems and to depict the legal and regulatory

environment in which they operate. Major

emphasis has been placed on the role of the

Eurosystem, which comprises the European

Central Bank and the NCBs of the euro area.

Last, but not least, the chapter on the euro

area also endeavours to describe aspects and

features of payment and securities settlement

systems which are common to all EU MemberStates.The reason for this is that, with regard

to the legal and banking environment in which

payment and securities settlement systems

operate, the EU Member States which have not

yet adopted the euro share a great deal with

those which have adopted the euro.

The re-shaping of the infrastructure and

accelerated efforts to harmonise and

consolidate payment and securities settlement

systems have been particularly prevalent inlarge-value payment systems. The creation of

TARGET has established an EU-wide RTGS

system which is used for the settlement of

central bank operations, cross-border and

domestic interbank transfers as well as other

large-value euro payments. TARGET is an

essential vehicle for the implementation of the

monetary policy for the Eurosystem, and has

helped to create a single money market within

the euro area.

The only privately owned and operated EU-

wide payment system is the Euro 1 system of

the Euro Banking Association (EBA). Euro 1

processes interbank payments as well ascommercial payments.

In addition to TARGET and the EBAs Euro 1,

there are four large-value net settlement

systems in operation: Euro Access Frankfurt

(EAF) which is run by the Deutsche

Bundesbank, Pankkien On-line Pikasiirrot ja Sekit-

jrjestelm (POPS system) operating in Finland,

Servicio de pagos interbancarios (SPI) in Spain

and the Paris Net Settlement system (PNS) in

France. More detailed information on these

systems can be found in the relevant country

chapters.

With regard to correspondent banking, it has

generally been noted that its former role of

being one of the main ways of making cross-

border payments has diminished in the euro

area since the launch of the euro. There are

signs that this development will also continue

in future.

The situation with regard to cross-borderretail payment systems within the euro area is

not yet as developed as is the case for cross-

border large-value payment systems. Despite

the introduction of the euro, cross-border

retail payment services have not yet reached

the service levels of domestic retail payment

services. Significant differences in quality,

efficiency and price between domestic and

cross-border services are still preventing

people from reaping the benefits of the

single currency. Correspondent bankingrelationships and enhanced correspondent

banking relationships in the form of networks

have experienced a remarkable concentration

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of business in some major correspondent

banks. In addition, large-value payment systems

are also used for cross-border retail business.

The only retail payment system which covers

the whole of the euro area and which is open

to all banks is the EBAs STEP 1 arrangement

(see Section 3.3.3). In order to foster an

improvement in the situation for cross-border

retail payments, the Eurosystem published a

report entitled Improving Cross-border Retail

Payment Services the Eurosystems view in

September 1999. This report identified the

issues to be tackled and drew up a list of

objectives to be fulfilled by the beginning of2002. A progress report was published in

September 2000 describing the achievements

which the banking community has made and

highlighting areas where further work is

necessary.

In the area of securities, the introduction of the

euro has eliminated currency segmentation,

which was one of the main reasons for the

fragmentation of listing, trading and settlement

in the countries of the euro area.The increased

homogeneity of the securities markets within

the euro area has encouraged investors to

regard the euro area securities markets as a

single entity. Trading, clearing and settlement

institutions are trying to respond to this

change in the market by increasing their cross-

border operations. Moreover, an integrated

euro area-wide money market has emerged

and the need in part to collateralise money

market transactions has provided an incentive

for the cross-border use of securities in the

euro area. Another factor pushing in the same

direction was the requirement for all collateral

eligible for monetary policy operations of the

central banks of the euro area to be equally

usable by all monetary policy counterparties.

As no suitable facilities for the cross-border

transfer of securities existed at the beginning

of Monetary Union, the central banks set up

the correspondent central banking model(CCBM). In the CCBM, central banks act as

correspondents for each other, thus enabling

the cross-border transfer of securities used for

the Eurosystems monetary policy operations

and the intraday credit operations of the ESCB.

In response to the increasing need for cross-

border transfers in euro, including for

commercial purposes, SSSs within the EU have

provided facilities for the cross-border transfer

of securities, i.e links between SSSs.

In response to the demands of the securities

markets for effective economies of scale and of

scope, the securities settlement industry is also

in the process of consolidating its cross-border

activities. The consolidation process covers

trading, clearing and settlement structures.

1 Institutional aspects

1.1 The general institutional

background

Most of the provisions of the Treaty

establishing the European Community (the

Treaty) which relate to Monetary Union and

most of the provisions of the Statute of the

European System of Central Banks and of the

European Central Bank (the Statute of the

ESCB) apply only to EU Member States whichhave adopted the euro and/or their central

banks and to the European Central Bank. In

order to clarify which central banks are meant

in which context, the name Eurosystem was

coined at the beginning of Stage Three. The

Eurosystem comprises the ECB and the NCBs

of those EU Member States which have

adopted the euro. The decision-making bodies

of the Eurosystem are the Executive Board of

the ECB and the Governing Council of the

ECB.The NCBs of Denmark, Sweden and the

United Kingdom, i.e. those EU Member States

which are not yet participating in MonetaryUnion and continue to conduct an independent

monetary policy, are not part of the

Eurosystem. When reference is made to the

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Euro area

ECB and the central banks of all EU Member

States, the more general term European

System of Central Banks (ESCB) is used.The

third decision-making body of the ECB, the

General Council, comes into play when matters

relating to the ESCB are involved.

One of the basic tasks of the Eurosystem is to

promote the smooth functioning of payment

systems. The relevant provisions are enshrined

in the Treaty and the Statute of the ESCB.The

Statute of the ESCB is annexed to the Treaty as

a Protocol and thus forms an integral part of

the Treaty.

The following legal provisions in the Treaty and

the Statute of the ESCB are of particular

importance with regard to payment and

settlement systems:

Article 105 (2) of the Treaty (reiterated

in Article 3.1 of the Statute of the

ESCB) which defines as a basic task of

the Eurosystem the promotion of the

smooth operation of payment systems;

Article 22 of the Statute of the ESCB

which states that the ECB and NCBs

may provide facilities, and the ECB may

make regulations, to ensure efficient and

sound clearing and payment systems

within the Community and with other

countries. Such ECB regulations are

directly applicable in the Member States

which have adopted the euro.

The Treaty assigns to the ECB the regulatorypowers to adopt any legal acts which are

necessary to implement the basic tasks

assigned to the Eurosystem. A distinction can

be made between two different kinds of ECB

legislation. First, there are legal acts addressed

to third parties (other than the NCBs of the

Eurosystem). These legal acts are ECB

Regulations, Decisions, Recommendations and

Opinions. Second, there are internal legal acts

which take the form of ECB Guidelines, ECB

Instructions and internal ECB Decisions.

In addition, the EU Council and the European

Parliament are empowered by the Treaty to

adopt legal instruments. These legal

instruments, which are applicable in all Member

States, include rules relating to the banking

industry and the provision of financial services.

Thus they also affect the framework for

payment and securities settlement systems.The

main legal instruments used by the EU Council

and the European Parliament are Directives,

which have to be implemented at the national

level. They are used to harmonise existing rules

at the national level or to establish new

legislation where national rules do not exist

but are deemed necessary. Some of the main

Directives which have an impact on paymentand securities settlement systems are the

following:

The Settlement Finality Directive

The main objective of Directive 98/26/EC of

19 May 1998 on settlement finality in payment

and securities settlement systems is to (1)

eliminate the main legal risks to which payment

and securities settlement systems are exposed,

taking into account the significant systemic risk

inherent in such systems both net and gross;

(2) ensure that the smooth functioning of a

system cannot be compromised by the

application of a foreign insolvency law in the

event of the participation of a foreign entity;

and (3) enhance the legal certainty of collateral

(also to the benefit of the credit operations of

the ESCB).The provisions of the SFD apply to

(a) systems, (b) participants in systems, and (c)

collateral security provided in connection with

participation in a system or in the framework

of the operations of the ESCB.

The Cross-Border Credit Transfers Directive

Directive 97/5/EC of 27 January 1997 on cross-

border credit transfers is concerned with

enabling individuals and businesses, especially

small and medium-sized enterprises, to make

credit transfers in euro rapidly, reliably and

cheaply from one part of the Community to

another. The Directive only applies to cross-

border credit transfers up to a value of50,000. It lays down minimum requirements

needed to ensure an adequate level of

customer information both before and after

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the execution of a cross-border credit transfer

and it sets forth minimum execution

requirements. In this respect, it provides that:

customers be given, in advance, prices

which they can understand clearly for

any type of credit transfer;

a transfer should be credited to the

beneficiarys account within a clearly

defined timescale (not exceeding 6

days);

transfers for which the originator pays

all the costs (OUR mode) will be the

rule, unless otherwise stipulated. Anintermediary or receiving bank may not

make any further charges, in particular

not to the beneficiary; and

when a transfer goes astray, a money-

back guarantee up to 12,500 is

provided.

The Cross-Border Credit Transfers Directive

assists the ECB in its task of promoting

efficient cross-border payments in the third

stage of EMU.

The E-Money Directive

Directive 2000/46/EC of 18 September 2000

on the taking up, pursuit of and prudential

supervision of the business of electronic

money institutions is aimed at fostering the

Single Market in financial services by

introducing a minimum set of harmonised

prudential rules for electronic money issuance

and by applying the arrangements for the

mutual recognition of home supervisionprovided for in Directive 2000/12/EC1 to

electronic money institutions (ELMIs). This

includes the safeguarding of the financial

integrity and the operations of ELMIs by, on the

one hand, ensuring the stability and soundness

of ELMIs and, on the other hand, ensuring that

the failure of any one individual ELMI does not

result in loss of confidence in this new means

of payment. The E-money Directive further

creates a level playing-field for the issuance of

electronic money by both traditional creditinstitutions and ELMIs, thus ensuring that all

issuers of electronic money are subject to an

appropriate form of prudential supervision.

The amendment, introduced by Directive

2000/28/EC of 18 September 2000, to the

definition of credit institution in Article 1,

paragraph 1, first subparagraph of Directive

2000/12/EC of 20 March 2000 relating to the

taking up and pursuit of the business of credit

institutions, obliges institutions that do not

intend to enter into the full range of banking

operations to issue electronic money in

accordance with the fundamental rules

governing all credit institutions. Such an

amendment promotes the harmonious

development of the issuance of electronic

money throughout the Community and avoidsany distortion of competition between

electronic money issuers, including with regard

to the application of monetary policy

measures.

The Investment Services Directive

Directive 93/22/EEC of 10 May 1993 on

investment services in the securities field is

also important in the context of payment and

securities settlement systems as it abolishes

(see Article 15) i) restrictions on access to

regulated markets in EU Member States, and ii)

restrictions on access to, and membership of,

bodies performing clearing and settlement

functions for regulated markets. The abolition

of these restrictions on access benefits both

investment firms and credit institutions (see

Article 2.1).

1.2 The role of the Eurosystem

The smooth functioning of payment systems isof particular concern to central banks for three

main reasons: i) a major malfunction in a

payment system could undermine the stability

of financial institutions and markets; ii) the

soundness and efficiency of payment systems

and the security of payment instruments affect

the confidence of users and, ultimately, public

confidence in the currency; iii) payment

systems represent essential vehicles for the

1 Directive 2000/12/EC of the European Parliament and of the

Council of 20 March 2000 relating to the taking up andpursuit of the business of credit institutions (includes the former

First Banking Co-ordination Directive and the Second Banking

Co-ordination Directive, which were essential in achieving the

Single Market for banking services in the EU).

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implementation of monetary policy. The

payment systems policies of central banks are

aimed at ensuring the efficiency and soundness

of payment systems. In order to achieve these

policy objectives the payment and settlement

services offered by the private sector are

overseen by central banks (for further details

on the oversight of payment systems see

Section 1.2.1). Central banks also offer

settlement services themselves and sometimes

assume an operational role in payment

systems. For the Eurosystem, this dual role of

regulator (overseer) and service provider is

emphasised, in particular, in Article 22 of theStatute of the ESCB.

In addition, the Eurosystem acts as a catalyst

for changes in the field of payment systems.

Central banks payment systems function and

prudential banking supervision share the

objective of financial stability, i.e. they are both

aimed at reducing the risk of financial crisis.

However, while prudential supervision looks at

institutions, central banks focus on the

oversight of systems.The Eurosystem considers

close co-operation between payment system

overseers and banking supervisors essential.

Therefore, EU payment systems overseers and

banking supervisors have agreed on a

Memorandum of Understanding (MoU). The

MoU is aimed at promoting co-operation

between payment systems overseers and

banking supervisors in relation to large-value

interbank fund transfer systems (IFTSs).

With regard to securities clearing andsettlement systems, the Treaty contains no

explicit reference to the role of the

Eurosystem. Nevertheless, the interest of

the Eurosystem goes beyond the

limited perspective of a user of collateral

in the context of its monetary policy

and intraday credit operations. With its

general responsibility for financial stability,

the Eurosystem, like any central bank in the

developed world, has a general interest in the

smooth functioning of securities clearing andsettlement systems with a view to ensuring the

smooth implementation of monetary policy

and the smooth functioning of payment

systems.

In pursuing the above-mentioned objectives,

the Eurosystem also co-operates with other

bodies and institutions which are active in the

field of payment and securities settlement

systems (see Section 1.2.4).

1.2.1 Payment systems oversight

As part of their payment systems function,

central banks monitor developments in the

field of payment and settlement systems in

order to assess the nature and scale of the

risks inherent in these and to ensure the

transparency of the arrangements concerningpayment instruments and services. Where

necessary they define principles and standards

for the promotion of safe, sound and efficient

payment and settlement systems. They ensure

that the systems, whether these are operated

by the central banks themselves or by private

operators, comply with these principles and

standards.

The oversight role of the Eurosystem which

is recognised in the Treaty (Article 105 (2)) and

the Statute of the ESCB (Articles 3 and 22)

covers both large-value interbank funds

transfer systems and retail payment systems.

With regard to the systems managed by the

Eurosystem, standards are applied which are at

least equivalent to those applied to privately

operated payment systems.

The Eurosystem has clarified its payment

systems oversight policy in a statement entitled

Role of the Eurosystem in payment systems

oversight which was published in June 2000.Accordingly, within the Eurosystem, oversight

activities are performed in the following

manner:

In line with the provisions of the Treaty and the

Statute of the ESCB, the Governing Council of

the ECB formulates the common policy stance

by determining the objectives and setting the

standards for payment systems whose

functioning may affect the implementation of

monetary policy, systemic stability, theestablishment of a level playing-field between

market participants and cross-border payments

within the EU and with other countries.

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In areas not specifically covered by the

common oversight policy, policies defined at

the NCB level apply within the framework of

the general common policy stance defined at

the Eurosystem level, in relation to which the

Governing Council can always take initiatives

where necessary. An appropriate level of co-

ordination between the ECB and the NCBs of

the Eurosystem is ensured for any proposed

policy or action in the field of oversight which

an individual NCB may wish to pursue at the

national level.

The Eurosystem may also formulate a policyconcerning the security of payment

instruments in order to maintain user

confidence. An example of the latter is the

Report on electronic money, published in

August 1998.

In line with the principle of decentralisation,

implementation of the common oversight

policy stance is ensured by the NCBs in

relation to domestic payment systems. For

systems which have no clear national base,

the body entrusted with the oversight

responsibility is the NCB of the country in

which the system is legally incorporated, unless

the Governing Council of the ECB decides

otherwise on the basis of features of the

system and entrusts oversight responsibility to

the ECB. This is the case for the Euro System

of the EBA Clearing Company (Euro 1) and for

the Continuous Linked Settlement Bank

(CLS Bank).2 In view of increasing cross-border

participation in payment systems within

the euro area, the Eurosystem favoursa co-operative approach towards the

implementation of the oversight policy

stance, with the local NCB acting as lead

overseer, and being responsible for liasing with

other relevant NCBs whenever this is required.

The common oversight policy stance can also

be legally ensured by ECB legislation in

accordance with Article 22 of the Statute. So

far, however, only more traditional, informal

tools (e.g. moral suasion) are used. Whereapplicable, implementation can, however, also

be enforced by legal instruments available to an

NCB.

The ECB and the NCBs of the Eurosystem

ensure consistency in the implementation of

the oversight policy stance and, in particular,

that standards are applied in the same way for

all the payment systems concerned. To this

end, these oversight activities are co-ordinated

at the level of the Eurosystem, through

appropriate committees and working groups.

As outlined above, the ECB or the NCB

concerned will ensure the management of

emergency situations in their capacity as

overseers of the different systems. Appropriate

information and co-ordination channels havebeen established within the Eurosystem to

ensure timely communication between the

overseers.

In carrying out its oversight role the

Eurosystem applies general principles,

standards, requirements and objectives which

are largely defined in the following reports:

In 1993 the Committee of Governors of the

Central Banks of the Member States of the EC

endorsed the Report entitled Minimum

common features for domestic payment

systems, which contained the guiding

principles for the preparation of payment

systems for Monetary Union. The report

underlined the importance of RTGS systems

through which as many large-value payments as

possible should be channelled in order to

maximise the containment of systemic risk.

Other large-value systems may continue to

operate in parallel with RTGS systems if they

fully comply with the minimum standards setout in the Report of the Committee on

Interbank Netting Schemes of the central

banks of the Group of Ten countries,

published by the Bank for International

Settlements (BIS) in November 1990

(Lamfalussy report), and if they settle on the

same day at a central bank. The 1993 report

2 It should be noted in this respect that the ECB is the primary

overseer for Euro 1, while the ECB is involved in the oversight

of CLS as the overseer in respect of the settlement of the euro,

in the framework of co-operative oversight set out in the

Lamfalussy report. NCBs of participating countries areassociated with the oversight activity of the ECB as members of

the Eurosystem the central bank of issue of the euro and

as NCBs of the banks which act as settlement members of CLS

Bank.

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also elaborated on access criteria, specifying

the requirements set out in the Lamfalussy

report in this respect within the context of EU

legislation.The common oversight policy of the

Eurosystem for large-value interbank funds

transfer systems (IFTSs) is based, in

particular, on these principles. Moreover, in

order to provide further guidance for the

implementation of Lamfalussy standard 1, which

requires all systems to have a well-founded

legal basis under all relevant jurisdictions, the

Eurosystem has developed harmonised terms

of reference for legal opinions (i.e. a list of

issues which have to be addressed in the legalopinion) for foreign participants in large-value

payment systems.

The guiding principles of the Eurosystems

oversight policy in the field of electronic money

are the requirements set out in the ECBs

Report on electronic money (1998).

In January 2001, the Governing Council of the

ECB also adopted the G10 report on Core

Principles for Systemically Important Payment

Systems as one of the standards the

Eurosystem must apply when performing its

oversight role.

The co-operation between payment systems

overseers and banking supervisors contributes

to an overall strategy of risk reduction in the

financial system. Co-operation between these

authorities is necessary since the stability of

the financial system may be affected by the

risks borne by credit institutions arising from

their participation in payment systems or bytheir provision of settlement services. In early

2001 the ECB, the NCBs of the Eurosystem

and the NCBs of EU Member States which

have not adopted the single currency, in their

capacity as overseers of payment systems, and

the EU banking supervisory authorities agreed

to a Memorandum of Understanding to

set out a framework for their co-

operation. According to the Memorandum

of Understanding, overseers will endeavour to

ensure that supervisors are made aware of therisks credit institutions run through their

participation in payment systems or by being

the operator/settlement agent of a payment

system. In turn, supervisors will endeavour to

ensure that overseers are made aware of the

risks posed to the system they are overseeing

by the participation of a credit institution and,

where the case arises, from the fact that the

operator/settlement agent of a payment system

is engaged in other banking activities, insofar as

these may have implications for its settlement

activities. Both authorities shall endeavour to

ensure that either one of them is able to take

prompt remedial action in the event of

problems in a payment system which stem

from, or have an impact on, a participating

credit institution.

As a rule, the oversight of retail payment

systems will continue to be defined by the

relevant NCBs. However, where new

developments occur or where retail schemes

would have potential cross-border implications,

general policy lines are defined at the

Eurosystem level. In this context, in September

1999 the Eurosystem concluded that the

situation for cross-border retail payments was

unsatisfactory (see the report entitled

Improving Cross-border Retail payment

Services The Eurosystems view), in

particular by comparison with domestic

payments with regard to prices and execution

times. Prices for cross-border transactions,

particularly for cross-border credit transfers,

are substantially higher than for domestic ones

despite the introduction of the euro, and the

execution time needed for cross-border

transactions is substantially longer than for

domestic ones. The low volumes by

comparison with domestic business, the stillpredominant use of correspondent banking

arrangements involving many intermediaries

instead of using a single payment infrastructure

as is the case domestically, and the lack of

standardisation and automation at the

interbank and intrabank levels were identified

as some of the main reasons for these

deficiencies. The Eurosystem, building on the

experience gained in domestic environments,

felt that a market-based, co-operative approach

with banks was the most appropriate forachieving substantial progress. It set out

seven objectives (such as a major price

reduction for cross-border credit transfers)

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and decided to act as a catalyst for change.

The progress report, published in September

2000, acknowledges that the banking

community in the EU has made progress but

observes that the objectives defined in the

1999 report have clearly not yet been achieved.

Therefore, the Eurosystem has defined further

action points in order to ensure that

substantial improvements can be achieved by

2002. The Eurosystem will closely monitor the

continued progress of the banks and their

compliance with the objectives and action

points set out in its reports and will continue

to assist banks in achieving the common goalby playing the role of a catalyst for change.

An assessment report on the level of cross-

border retail services will be published in early

2002. If banks fail to deliver efficient cross-

border payment services by 2002, the

Eurosystem would be forced to reconsider its

policy of not becoming operationally active.

1.2.2 Activities in the area of securities

clearing and settlement systems

According to the Treaty, the Eurosystems

monetary policy and intraday credit operations

should be collateralised. The Eurosystem

therefore has a keen interest in ensuring that

the transfer, settlement and custody of

collateral is safe and efficient. In order to

ensure a level playing field within the euro area,

the Eurosystem has developed and endorsed

nine standards to be met by EU SSSs used for

ESCB credit operations.3 Individual SSSs have

been assessed against these standards in order

to qualify for use by the Eurosystem.The firstassessment was completed before the start of

phase three and 29 SSSs qualified. The

assessment is carried out on a regular basis in

order to monitor major changes in individual

SSSs. The Eurosystem also regularly assesses

the links established by SSSs for the cross-

border transfer of securities.

1.2.3 Operational role of the Eurosystem

One way for central banks to promote the safeand efficient functioning of payment systems is

to operate their own payment systems. The

main operational role of the Eurosystem lies in

the provision of the TARGET system. However,

TARGET is not run by the central banks of

the Eurosystem alone. All central banks of

the ESCB are connected to TARGET. TARGET

is the real-time gross settlement system

for the euro. It provides facilities for settlement

in central bank money. A more detailed

description of TARGET can be found in

Section 3.1.

The ECB and NCBs also offer their settlement

services to other payment and settlement

systems e.g. the balances of large-value net

settlement systems are settled at the centralbank.

Some NCBs also run retail payment systems

and operate in-house SSSs. More detailed

descriptions of the respective systems can be

found in the relevant country chapters.

The ESCB is also operationally involved in the

cross-border transfer of securities which can

be used as collateral to obtain intraday

credit from NCBs and for monetary policy

operations. For this purpose, the

correspondent central banking model (CCBM)

was established in order to facilitate the cross-

border use of collateral in the Eurosystems

monetary policy operations and the intraday

credit operations of the ESCB. Within the

CCBM the NCBs act as correspondents for

each other and thereby enable counterparties

to use all their eligible assets to obtain credit

from their NCBs. Counterparties to the

monetary policy operations of the Eurosystem

and participants in TARGET in the EU area canonly obtain credit from the central bank of the

country in which they are established their

home central bank. However, through the

CCBM, they can use collateral held in other

countries. A more detailed description of the

CCBM can be found in Section 4.3.1.

1.2.4 Co-operation with other institutions

In addition to defining principles, etc. on its

own, the Eurosystem also actively co-operateswith other bodies and institutions which are

3 Standards for the use of EU securities settlement systems,

January 1998.

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active in the area of payment and settlement

systems.

First, there is the co-operation with the EU

Commission, which regularly participates in

meetings with the central banks on issues

related to payment and securities settlement.

In turn, the central banks participate in

meetings at the EU Commission, thus ensuring

that co-operation is as close as possible (see

also Section 1.3.1 below).

The ECB and several NCBs of the ESCB

participate in the Committee on Payment andSettlement Systems (CPSS) of the G10 central

banks. The CPSS operates under the auspices

of the Bank for International Settlements (BIS)

based in Basel.The CPSS monitors and analyses

developments in payment and securities

settlement systems. Its activities are generally

more analytical than policy-oriented in nature.

Nevertheless, its reports on many different

issues have often had a strong influence

on practical developments worldwide (for

further information visit the BIS website at

www.bis.org).

The ECB and several NCBs are participating in

a joint task force of the CPSS and the International

Organization of Securities Commissions

(IOSCO) in the field of SSSs. The task force has

already published a consultative draft report on

Recommendations for Securities Settlement

Systems aimed at developing recommendations

for the design, operation and oversight of SSSs.

The purpose of these recommendations is to

reduce systemic risk, increase efficiency andprovide adequate safeguards for investors.

The Eurosystem also co-operates closely with

banking supervisors. Such co-operation and co-

ordination contribute to achieving the overall

objective of reducing risk in the financial

system and help to promote stability.

Furthermore, the Eurosystem actively

promotes the further harmonisation of codes

and operational standards which would enablethe straight-through processing (STP) of

payments. This is crucial for achieving greater

security and efficiency in payment and

settlement systems.

Last, but not least, the Eurosystem regularly

meets with market participants in order to

maintain close contact with the market, to

convey its ideas to the market and to obtain

feedback from market participants on how the

work of the Eurosystem in the area of payment

and securities settlement systems is perceived.

1.3 The role of other private and

public sector bodies

1.3.1 The Commission of the European

Communities, the Council of the

European Union and the European

Parliament

The promotion of the smooth operation of

payment systems is mentioned in the Treaty as

one of the basic tasks of the Eurosystem.

Nevertheless, the Commission of the European

Communities (the Commission), in its function

as the executive body of the EU, and the

Council of the European Union (EU Council)

and the European Parliament in their function

as the legislative bodies of the EU continue to

concern themselves with issues related to

payment and securities settlement systems.

One of the tasks of the Commission is to

strive for further harmonisation of the laws

within the Union, including those which have an

impact on payment systems, by issuing

Directives which have to be implemented in

national law by the Member States. One of theprincipal aims is to create a single market with

a level playing-field and equal opportunities

throughout the EU. Consumer protection is

another area in which the Commission is

active. A recent example can be found in the

field of cross-border retail payment systems,

where the Cross-Border Credit Transfers

Directive of the EU Council and the European

Parliament (see Section 1.1) complements the

initiatives of the Eurosystem and is pushing the

industry to improve the situation quickly. TheCommission has also launched an initiative to

explore how fraud and counterfeiting in

payment systems can be prevented. Another

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arrangements which are set up. As SWIFT is

located in Belgium, the National Bank of

Belgium acts as lead overseer and is supported

in this task by the other G10 central banks,

including the ECB. The practical co-ordination

takes place in the Committee on Payment and

Settlement Systems (CPSS), on which all G10

central banks are represented.

1.3.4.2 Recent developments

In 1997 SWIFT announced plans for its next

generation of products and services running

on a secure internet protocol (IP) network.The first phase of this project was realised in

1999 when the next generation concept,

SWIFTNet, went into operation, offering add-

on services such as real-time information.

In July 1999 SWIFT published a white paper

entitled Building for tomorrow, describing

the new range of SWIFTNet services and

related products, the phases of their

introduction and the continuing role of the

current network and services during the roll-

out of the new environment.

SWIFTNet services have been introduced with

the objective of offering the financial industry a

standard platform for financial communication

and messaging and a package of interactive

capabilities. SWIFTNet complements the FIN

service in supporting real-time financial

operations. The FIN services provided by

SWIFT enable financial institutions in more

than 190 countries to exchange financial data in

a secure and reliable manner.

Current SWIFTNet capabilities range from

interactive query/response and transaction

inputting to http-based browsing and file transfer.

SWIFTs plan to allow access to FIN via

SWIFTNet and to dismantle the existing X.25

network infrastructure by the end of 2004 has

been endorsed by its Board of Directors.

SWIFTNet FIN will provide customers withsingle-window access to both SWIFTNet

services and FIN. This will eliminate the

necessity of managing two separate technical

infrastructures in order to access SWIFT

services, thereby reducing costs.

1.3.4.3 Payments infrastructure

SWIFT provides the interlinking messaging

service for the 15 central banks participating in

TARGET. In the EU, SWIFT also provides the

messaging infrastructure for the Euro 1 system

of the Euro Banking Association, ELLIPS

(Belgium), DEBES (Denmark), BOF-RTGS

(Finland),TBF/PNS (France), HERMES (Greece),

IRIS (Ireland), LIPS (Luxembourg), SPI (Spain),

RIX (Sweden), CHAPS Euro (United Kingdom)and remote access for EAF and ELS (Germany).

In Italy, FIN has been used since November

2000 to allow banks from abroad to access the

BIREL system and to offer domestic banks an

alternative for TARGET-related transactions.

The Deutsche Bundesbank and CHAPS have

also recently signed agreements with SWIFT

and the Oesterreichische Nationalbank is in

discussions with SWIFT regarding enhanced

SWIFT facilities to access their payment system

ARTIS.

Looking at the situation outside the euro area,

by the end of 1999 SWIFT was providing the

network infrastructure for payments clearing

systems in Australia (PDS), Canada (LVTS),

Croatia (HSVP), Hungary (VIBER), New

Zealand (SCP), Norway (NICS), Slovenia (SIPS),

South Africa (SAMOS) and Venezuela (PIBC).

Another 12 systems are currently under

discussion or in the process of being

implemented.

The involvement of SWIFT in CLS, a single

industry facility for reducing settlement risk in

the foreign currency markets, is related to the

provision of the network infrastructure.

Four pilot banks have been using SWIFTNet

InterAct, SWIFTs interactive communication

service, which supports the exchange of

request and response messages between two

parties and allows users to browse remote

data sources and to communicate with CLSServices in the testing phase of the CLS

programme. The CLS network uses both

SWIFTs current FIN messaging service and

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accounted for 39% of transactions in terms of

value, indicating the still high importance of this

payment instrument for the economy. In

Finland, on the other hand, the use of cheques

was very marginal, representing just 0.2% of

total non-cash transactions performed in 1999.

Cheques also accounted for a smaller

percentage of non-cash transactions than the

euro area average in Belgium (6%), Germany

(4%), Austria (2%) and the Netherlands (1%).

2.2.2 Credit transfers

Credit transfers are the most widely usedmeans of non-cash payment in the euro area. In

1999 they accounted for close to half of all

non-cash transactions in the euro area.

Credit transfers are the preferred non-cash

payment instrument in more than half of the

euro area countries. In Finland they made up

59% of all non-cash transactions in 1999, in

Austria 58%, in Belgium 52%, in Germany 50%,

in Italy 42% and in the Netherlands 41%.

Estimates suggest that credit transfers are also

the most commonly used non-cash payment

instrument in Luxembourg. Only in Ireland

(20%), Spain (14%), Portugal (6%) and France

(18% in 1998) do consumers favour other

payment instruments over credit transfers.

2.2.3 Direct debits

The importance of direct debits in the euro

area has grown in recent years because of an

increased tendency for utility and retail

companies to offer this service. In 1999 directdebits accounted for about one-third of non-

cash transactions in the euro area.

The use of direct debits ranged from 4% of

total non-cash transactions in Finland to 51% in

Spain. Direct debits were the second most

frequently used non-cash payment instrument

in Germany (40%), Austria (29%) and the

Netherlands (28.9%). In the other euro area

countries direct debits played a significantly

smaller role, with their share in total non-cashtransactions in 1999 ranging between 10% and

14%.

Owing to their anonymous nature, there is no

precise data on the value and number of cash

payments conducted in the euro area. Taking as

an indicator the amount of cash in circulation

as a percentage of GDP in 1999, cash payments

seemed to be in least demand in Finland (2.3%)

and France (3.4%). The highest ratios were

found in Spain (9.7%), Austria (6.7%), Germany

(6.6%) and Italy (6.0%), indicating a higher use

of cash for payments.However, any comparison

is made difficult by the fact that for some of the

legacy currencies there is a substantial though

not precisely measurable amount of cash in

circulation outside the country of origin.

2.2 Non-cash payments

Credit transfers are the most widely used

means of non-cash payment in the euro area,

followed by direct debits, as these means of

payment offer the most convenience to their

users. Also on the rise are card-based

payments, with debit cards being preferred to

credit cards in most countries.

Although traditionally a very important

payment instrument, in many countries of the

euro area cheques have been replaced to a

large extent by other payment instruments.

Even in countries where the actual number of

cheque payments is still rising (Ireland, Italy),

their importance relative to other payment

instruments is declining.

2.2.1 Cheques

In 1998, almost 70% of all cheques in the euroarea, or 4.8 billion, were used in France, while

in the rest of the euro area approximately 2.1

billion cheques were used. Following the trend

of recent years, cheque use declined further in

1999.

In Ireland and France, cheques are still the

most widely used payment instrument,

accounting for almost half of all non-cash

transactions. Cheques were also quite popular

in Portugal (34% of total non-cash transactionsin 1999) and Italy (28%). Although in Spain

cheques made up only 11% of all non-cash

transactions in terms of volume, they

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2.2.4 Payment cards

Though still outweighed in most euro area

countries by credit transfers or direct debits,

the use of credit and debit cards has increased

throughout the euro area as a result of a

growing acceptance of card-based payments by

retailers. In 1999 about one-sixth of all non-

cash transactions in the euro area were

completed using some form of payment card.

Debit cards are more widely held than credit

cards in most countries of the euro area,

outweighing the latter on average 4:1 in termsof the number of cards in circulation in 1999.

Although there are more terminals which

accept credit cards than debit cards in the euro

area (more than 14,000 per 1,000,000

inhabitants as compared with 9,274), debit

cards are used on average almost four times as

often as credit cards.

Payment cards dominated non-cash payments

in Portugal, where in 1999 some 47% of

transactions were completed using credit or

debit cards. They were the second most

important payment instrument in Finland

(37%), Belgium (29%), Spain (24%), Ireland

(20%) and France (24% in 1998), and were just

marginally outnumbered by direct debits in the

Netherlands (28.6%). According to estimates,

the use of credit and debit cards is also quite

significant in Luxembourg. At the other end of

the scale, a mere 5% of total non-cash

transactions in Germany were conducted using

credit or debit cards. In Italy (19%) and Austria

(11%) payment cards were also relatively lessimportant than in the rest of the euro area.

2.2.4.1 Credit cards

The number of credit cards in circulation in the

euro area reached 209 per 1,000 inhabitants in

1999. They were used for an average of 5

transactions per person per year.

In 1999, the most cards per 1,000 inhabitants

were found in Luxembourg (691), which at thesame time had the most credit card

transactions per person per year (29.1). Also

well above the euro area average in usage were

Portugal (14.3 transactions per person per year

and 258 cards per 1,000 inhabitants), Ireland

(12.6 and 304) and Finland (11.6 and 575).

Although in Spain there were 400 credit cards

per 1,000 inhabitants in circulation, they were

used rarely just 5.6 transactions per person

per year. There was also less demand for credit

cards in the other euro area countries, with

cards in circulation ranging between 200 and

300 per 1,000 inhabitants and usage below the

euro area average. Trailing in the number of

credit cards in circulation was France with a

mere 20 cards per 1,000 inhabitants.

2.2.4.2 Debit cards

Debit cards are the most widely held kind of

payment card in the euro area. There were 818

debit cards per 1,000 inhabitants in circulation

in the euro area in 1999, which were used for

an average of 19.3 transactions per person per

year.

The leading country in the circulation of debit

cards in 1999 was the Netherlands with 1,272

cards per 1,000 inhabitants and 44.3

transactions per person per year. Debit cards

were also frequently used in Finland (51.1

transactions per person per year and 647 cards

per 1,000 inhabitants), France (48.6 and 552),

Portugal (37.1 and 1,084), Belgium (34.7 and

1,182) and Luxembourg (23.2 and 619).

Despite a large number of debit cards in

circulation, Germany (1,099 cards per 1,000

inhabitants) and Spain (1,085) recorded only

between 5 and 7 transactions per person per

year, which was the same range of usageobserved in Austria (with 731 cards per 1,000

inhabitants in circulation), Italy (351) and

Ireland (154).

2.3 Recent developments

The most notable recent development in the

usage of payment instruments by non-banks is

the increased tendency for consumers to

issue and transmit payment instructions

electronically to their banks. Banks in the euroarea are actively taking advantage of recent

advances in technology and are increasingly

offering internet-based and mobile phone-

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based banking to complement established

forms of remote banking, like self-service

banking, home banking and phone banking.

Acceptance of those new media by consumers

for payment purposes depends on the

availability and cost structure of the underlying

technology, which vary quite significantly

between individual countries. Recent initiatives

by the banking sector to standardise and

simplify the use and enhance the security

features of internet banking, electronic bill

presentment and payment (EBPP) and e-money

schemes (see 3.4) should facilitate this process.

Although there has been a lot of discussion

about the use of e-money and its importance, it

is still not a widely used medium. In 1999 only

0.3% of transactions were conducted using

e-money, which nevertheless represents a

doubling of the 1998 figure. A number of

national e-money and prepaid card schemes

are preparing or currently testing the

adaptation of their cards for use in internet

transactions, either through an online

verification procedure or through a plug-in

terminal for personal computers. Such an

expansion in the features of those cards could

eventually lead to a stronger demand from the

consumer side, and growing familiarity with this

means of payment could stimulate its use.

While within any given euro area country the

level of standardisation of retail payment

instruments is high, there is a notable lack of

standardisation across countries. Cross-border

retail payments are often presented in formats

unsuitable for efficient straight-through

processing and therefore require costly manual

intervention. The Eurosystem is currently

engaged in efforts to facilitate the efficientprocessing of cross-border retail credit transfers

within the euro area by, among other things,

encouraging the banking sector to implement

international standards, such as the

International Bank Account Number (IBAN)

and the International Payment Instruction (IPI).

The banking sector is also engaged in efforts to

create interoperability between card networks

and direct debit schemes in different countries

in order to enhance their cross-border

usability (see Section 3.4).

3 Interbank exchange and settlement systems

3.1 The real-time gross settlement

system: TARGET

The Trans-European Automated Real-time

Gross settlement Express Transfer (TARGET)system is the real-time gross settlement system

for the euro. It is a decentralised system

consisting of 15 national RTGS systems, the

ECB payment mechanism (EPM) and the

Interlinking system. The latter is a tele-

communications network linking the national

RTGS systems and the EPM. The system

successfully commenced live operations on 4

January 1999 with some 5,000 participants

throughout the EU.

The decision to construct the TARGET system

was taken by the Council of the European

Monetary Institute (EMI) in March 1995.

TARGET was developed to meet three main

objectives: first and foremost, to facilitate the

integration of the euro money market in order

to allow for the smooth implementation of the

single monetary policy; second, to improve thesoundness and efficiency of payments in euro;

and third, to provide a safe and reliable

mechanism for the settlement of payments

on an RTGS basis, thus contributing to a

minimisation of risks in making payments. In

order to achieve these objectives, TARGET

offers the possibility of transferring central bank

money on a cross-border basis as smoothly

as in the domestic market, making it possible to

re-use these funds several times a day.

In order to minimise the time required and the

costs to the central banks and credit

institutions of establishing TARGET, it was

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minimum common features with which each

national RTGS system participating or

connected to TARGET shall comply (e.g. access

criteria, currency unit, pricing rules, time of

operation, rules referring to what kind of

payments may be processed through TARGET,

when a payment order should be processed or

when a payment order is considered to be

irrevocable, and intraday credit); arrangements

for cross-border payments through the

Interlinking system; security strategy and

security requirements for TARGET; provisions

establishing the framework for the audit of

TARGET; and the management of TARGET.

An agreement has been entered into by the

Eurosystem and the NCBs of the Member

States which did not adopt the single currency

on 1 January 1999. It provides a mechanism

through which the NCBs of Member States

outside the euro area are able to connect to

TARGET and adhere to the rules and procedures

referred to above. Some modifications and

refinements have been made to these rules and

procedures in order to take into account the

special situation of the NCBs of Member States

outside the euro area.

3.1.2 Participation in the system

According to the TARGET Guideline, only

supervised credit institutions as defined in the

first indent of Article 1 of the First Banking Co-

ordination Directive4 which are established in

the European Economic Area (EEA) can be

admitted as direct participants in a national

RTGS system. In addition, as an exception, thefollowing entities may also be admitted as

participants in a national RTGS system subject

to the approval of the relevant NCB:

treasury departments of central or

regional governments of Member States

active in money markets;

public sector bodies of Member States

authorised to hold accounts for

customers;

agreed to harmonise national RTGS systems

only to the extent necessary to ensure both

uniformity in the implementation of the

monetary policy of the ECB and a level playing-

field for credit institutions. Although several

technical and organisational features continue

to differ between NCBs,TARGET has been set

up in such a way that the use of the system is

very similar for participants, whether in

domestic or in cross-border mode.

A unique feature of TARGET is that its euro

payment services are available throughout the

EU, which is a wider area than that in whichthe single currency has been adopted. Indeed,

three EU countries which have not yet adopted

the euro (Denmark, Sweden and the United

Kingdom) are connected to TARGET. Since it is

necessary for all countries adopting the euro

to participate in TARGET, and as the time that

was available to set up the system was limited,

all EU NCBs had to start investing money in

TARGET before they knew whether they

would be part of the euro area. Thus, in 1995,

the EMI Council agreed that all current EU

NCBs should be ready to connect to TARGET

by 1999. It was pointed out, however, that for

those countries which did not adopt the euro

from the outset, the connection would be

subject to certain conditions which were

subsequently decided by the Governing

Council of the ECB.

3.1.1 Operating rules

The rules governing TARGET and its operation

can be found in the Guideline of the EuropeanCentral Bank on a Trans-European Automated

Real-time Gross settlement Express Transfer

system (TARGET Guideline) and the sets of

rules and procedures contained in the national

regulations and/or contractual provisions

(national RTGS rules) applying to each of the

national RTGS systems and the EPM which are

the component parts of TARGET.The TARGET

Guideline came into effect on 1 January 1999,

i.e. the starting date of Stage Three of EMU.

The TARGET Guideline applies to the ECB and

the NCBs participating in the Eurosystem. It

includes provisions on, inter alia, a number of

4 This is now incorporated into Directive 2000/12/EC of the

European Parliament and of the Council of 20 March 2000

relating to the taking up and pursuit of the business of credit

institutions.

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investment firms established in the EEA

which are authorised and supervised by

a recognised competent authority; and

organisations providing clearing or

settlement services subject to oversight

by a competent authority.

The criteria for participation in a national

RTGS system are set out in the RTGS rules

concerned and are available to the

interested parties. RTGS rules require

reasoned legal opinions, based on the

Eurosystems harmonised terms of reference

for legal opinions, to be requested fromapplicants and reviewed by the relevant NCB.

The harmonised terms of reference are

available to interested parties. Capacity

opinions (which establish that an applicant is

legally able to conclude agreements) are

requested for each individual (domestic and

foreign) applicant when joining the system,

unless such opinion has been received in

another context. Country opinions (which

establish that there are no foreign legal

provisions which could have adverse effects on

the agreements concluded) are requested from

the jurisdictions of foreign participants,

whether they are incorporated in an EEA or a

non-EEA country.

All credit institutions participating in national

RTGS systems automatically have access to the

cross-border TARGET service.

It is also possible for credit institutions to

access TARGET remotely. Remote access to

settlement facilities in TARGET is defined asthe possibility for an institution, established in a

country in the EEA, to become a direct

participant in an RTGS system in TARGET in

another country and, for that purpose, to have

a settlement account in euro in its name with

the central bank of that country without

necessarily having established a branch or

subsidiary in that country. Such credit

institutions can only participate in TARGET on

a positive balance basis as they do not have

recourse to intraday credit or to the Euro-systems marginal lending facility.

3.1.3 Types of transaction handled

TARGET can be used for all credit transfers in

euro. It processes both interbank and customer

payments and there is no upper or lower limit

placed on the value of payments. All payments

are treated equally, irrespective of their value.

The following types of transaction are handled

by TARGET:

payments directly connected with

central bank operations in which the

Eurosystem is involved either on the

recipient or the sender side; the settlement operations of large-value

netting systems operating in euro; and

interbank and commercial payments in

euro.

It is mandatory for the first two types of

transaction to be settled through TARGET.

TARGET is also used for the handling of

transfers made between ESCB central banks.

3.1.4 Operation of the transfer system

In order to meet the needs of the financial

markets in general and of its customers in

particular, TARGET provides long daily

operating hours: it opens at 7 a.m. and closes at

6 p.m. ECB time (Central European Time). In

order for participants to better manage their

end-of-day liquidity, customer payments are

subject to a cut-off time set at 5 p.m.

Furthermore, common closing days apply to

TARGET. From 2002 onwards,TARGET will beclosed not only on Saturdays and Sundays, but

also on New Years Day, (Catholic/Protestant)

Good Friday, (Catholic/Protestant) Easter

Monday, Labour Day (1 May), Christmas Day

and 26 December. In 2001, in addition to the

aforementioned closing days,TARGET will also

be closed on 31 December. TARGET closing

days are, in effect, non-settlement days for the

money market and the financial markets in

euro, as well as for foreign exchange

transactions involving the euro. The CCBM forthe cross-border use of collateral will be

closed on TARGET closing days.

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cross-border transfers should be in the same

range so as not to affect the singleness of the

money market. These fee structures are

disclosed to interested parties.

3.1.9 Statistical data for TARGET

The turnover figures in TARGET have steadily

increased since January 1999. In 2000, the daily

average of payments processed by the system

as a whole (i.e. both cross-border and

domestic payments) was 188,157, representing

a value of 1,033 billion.TARGET cross-border

traffic amounted to 41.8% of the total TARGETvalue in 2000, compared with 38.9% in 1999,

and to 21.2% of the total TARGET volume,

compared with 17.6%. Of the cross-border

TARGET payments, 96.5% in terms of value and

65.5% in terms of volume were interbank

transactions, with the remainder being

customer payments. The average value of a

cross-border interbank payment was 10.8

million and the average value of a cross-border

customer payment was 1.1 million. More

detailed statistics can be found in the statistical

tables in Annex 1.

3.2 The Euro 1 system of the Euro

Banking Association

3.2.1 Institutional set-up

The Euro Banking Association (EBA) is a co-

operative undertaking between EU-based

commercial banks and EU branches of non-EU

banks. With Euro 1, it provides a multilateral

large-value EU-wide payment system for eurocredit transfers.

The system is governed by three bodies, which

have been established under French law. First,

there is the Euro Banking Association (EBA),

which is an umbrella organisation which is

intended to be a forum for exploring and

debating all issues of interest to its members,

in particular issues related to euro payments

and the settlement of transactions in euro.

Second, there is the EBA Clearing Company,which operates the Euro 1 system. It has its

registered office in Paris and its shareholders

are the clearing banks. The EBA Clearing

Company was set up by the Euro Banking

Association (EBA) and incorporated for the

purpose of operating and managing the

Euro 1 system. The EBA defines the general

principles for the Clearing Company. Third,

there is the EBA Administration Company,

which was set up to provide administrative

services, in particular human, technical and

other support to the EBA and the Clearing

Company. The relationship between the EBA,

the EBA Clearing Company and the EBA

Administration Company is governed by a

master agreement.

3.2.2 Participation and access criteria

Euro 1 is an international system. As at 31

December 2000 there were 72 clearing banks

participating in Euro 1. These banks are from

all the EU Member States and five non-EU

countries (Australia, Japan, Norway, Switzerland

and the United States), but all banks concerned

are incorporated in the EU or have branches

located in the EU. There are three sets of

access criteria for Euro 1: legal, f